from Follow the Money

Not quite as good as they look (the March trade numbers)

May 12, 2006

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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Not quite as good as the headline fall suggests.


That is my initial take on the March US trade numbers


China didn’t surprise by the way.  It posted another $10 billion plus trade surplus in April -- $10.5 precisely.  Exports were up 23.9% y/y; imports increased by a much smaller 15.3% y/y.  For all the talk about rebalancing Chinese growth, the data so far suggest that China is becoming more, not less, dependent on exports – and that its trade surplus is poised to increase further.


The US trade deficit dipped to $62 billion in March.   That wasn’t expected.  Certainly not by me.  I probably spent too much time looking at the Asian data, and too little looking at oil … 


More on that later.


The deficit improved because of strong exports.   The export numbers are as good as they look.  Broad across the board gains.    Aircraft are doing fine – the US exported about $10b of planes in q1, v $6b a year ago.   But Boeing didn’t drive the data.  March aircraft exports were a bit below February exports.   The US sold a lot more electronics.


And the deficit improved because of an unusual fall off in imports.


Non-oil goods imports did not bounce back strongly from their February total of $125.3b (s.a.).  March exports were $126b.  I had expected a higher number, something a bit closer to the (high) January number of $130.3b.  I wonder a bit about the seasonal adjustment – overall goods imports (not seasonally adjusted) were $154.2b in March, v $136.3b in February.  


But the main reason for the better-than-expected deficit: oil


That’s right.  Oil.  Oil imports fell.

Seasonally adjusted petroleum imports fell by about $2 billion in March.  Seasonally adjusted imports of “industrial supplies” – a category that includes crude oil, gas and host of other raw materials – fell by $3.3b.    I thought commodity prices were going up and up …


Some of it may be that the seasonal adjustment is a bit off.


But not all of it. 


I always like to look at Exhibit 17 of the trade report.  It is the data on oil imports in its rawest form.   And it turns out that the US imported less oil this March than last March: 397,983 thousand barrels v. 420,260 thousand barrels.   And the US imported less oil in the first quarter of 2006 than in the first quarter of 2005: 1,192,492 thousand barrels v 1,226,459 thousand barrels.   For the quarter, that is a fall of 2.75%.


Maybe higher prices are having an impact.


That is the good news.   The bad news: the March import price of $52.26 a barrel (a bit below February) is not going to last.   And I hope that inventories were high despite the fall off in imports … otherwise, April isn’t going to be pretty.


We all sort of know that the April trade number will be worse than March.   But there are two things to watch in particular.  One, obviously, is the size of the bounceback in oil imports.  Not just in nominal terms.  But also in volume terms. 


If higher prices lead the US to cut back on the quantity imported, that will help …  not a lot, but some.


And non-oil imports.   They marched up quite strongly in the fourth quarter and then blew out in January.   Now they consolidated a bit – but the trend here is something to watch.  


For the quarter, non-oil imports were up 10.5% y/y.   The March y/y growth rate was higher, but that is deceptive, since non-oil imports were unusually low last.  The February and March combined y/y growth number is a bit over 10% -- not quite as high as January’s 11.3%, but enough to give me pause. 


10% growth in non-oil imports implies a higher deficit.  Simple as that.  I want to see stronger evidence that non-oil import growth is starting to slow before saying the trade deficit has turned the corner


And the market, which shrugged off rising deficits when the dollar was strengthening, shrugged off a falling deficit.  The dollar continues to slip -- and, in this case, I happen to agree with the market.


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